Govt likely to raise RM5b from prosperity tax, tax on income from foreign sources

The government is likely to raise about RM5 billion from cukai makmur (prosperity tax) and tax to be imposed on residents in Malaysia on income derived from foreign sources, said Maybank Kim Eng (MKE).

Its regional equity research head Anand Pathmakanthan said the brokerage firm expects RM3.5 billion would be transferred from listed companies to the government from the prosperity tax, a one-off measure announced in Budget 2022, and RM1.5 billion from tax from foreign sources.

Anand said this at Maybank Investment Bank Bhd’s webinar themed 'Malaysia Budget 2022: Reinforcing the Nascent Recovery” in Kuala Lumpur today.

Citing information from a briefing with the Finance Ministry recently, he said analysts learnt that 240 out of 1.4 million companies in Malaysia would be subjected to the prosperity tax.

For about 100 companies under MKE’s coverage, he said the prosperity tax is likely to have about 4-5 percentage points hit on two-thirds of these companies’ earnings in 2022.

“The 4-5 percentage points cut on 2022’s earnings means the earnings growth on the benchmark FBM KLCI would be negative in 2022.

“That is why we are forced to cut our 2021 FBM KLCI target to 1,530 from 1,720 previously, (because) it would not only have the earnings impact for 2022, but also (create) uncertainties on whether such levy could continue for another year,” he said.

Tax structure

On the banking sector, Anand said the prosperity tax is likely to pose about 7-11 percent impact on banks’ earnings in 2022.

“That is definitely going to suppress dividend payout... Yes, you will get dividends, but normalisation (in dividend payout) is likely to be seen in 2023,” he said, adding that plantation firms would also not be spared due to the current high crude palm oil price which has surpassed RM5,400 per tonne.

However, he did not expect multinational companies to be affected by the tax as they probably had negotiated the tax structure with the government before they invest in the country.

In terms of fund flow, Anand said although foreign fund was seen returning to the local equity market three months in a row since August 2021, he is doubtful whether the momentum would continue in November.

“I have no idea what November would look like post-prosperity tax announcement... probably won't be very impressive,” he said.

On Budget 2022’s impact on the sovereign ratings, MKE fixed income research head Winson Phoon expects Fitch to keep its BBB+/Stable outlook and Moody’s to maintain its A3/Stable outlook on Malaysia.

“The only risk is S&P, which has an A-/Negative outlook on Malaysia.

“The key question is, whether Malaysia’s medium-term fiscal consolidation is sufficiently big or fast enough to avoid a rating downgrade, which I think is going to be a close call,” he said.

In terms of the overnight policy rate (OPR), Phoon said MKE expects Bank Negara to raise the rate by 25 basis points in 2022, while the market is looking at more than two hikes next year.

The brokerage firm also anticipates the country's gross domestic product to grow six percent in 2022, in line with the government’s projection of between 5.5 and 6.5 percent growth.

Overall, Phoon said MKE has a “neutral” call on Malaysian Government Securities (MSG) outlook and is mildly bullish on its duration, as the Employees Provident Fund withdrawals such as i-Lestari, i-Sinar and i-Citra have come to the tail end and would help support the ringgit-bond market for some duration.

He believes the EPF contribution rate reduction to nine percent from 11 percent as announced in the budget would not have significant impact on the local bond market.

- Bernama